Prentice Hall, 2002Chapter 5 Wheelen/Hunger 1 Chapter 5 Strategy Formulation: Situation Analysis and Business Strategy

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 2 Situational Analysis Strategy formulation: –Strategic planning or long-range planning Develops mission, objectives, strategies and policies

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 3 Situational Analysis Situational Analysis: –Process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses.

Prentice Hall, 2002Chapter 5 Wheelen/Hunger Strategic Factor Analysis Summary (SFAS) Strategic Factors (Select the most important opportunities/threats from EFAS, Table 3.4 and the most important strengths and weaknesses from IFAS, Table 4.2) Total Score Weight Rating Weighted Score Comments SHORT INTERMEDIATE LONG Duration 6

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 5 Strategic Factors (Select the most important opportunities/threats from EFAS, Table 3.4 and the most important strengths and weaknesses from IFAS, Table 4.2) S1Quality Maytag culture (S) S3Hoover’s international orientation (S) W3Financial position (W) W4Global positioning (W) O1Economic integration of European Community (O) O2Demographics favor quality (O) O5Trend to super stores (O + T) T3Whirlpool and Electrolux (T) T5Japanese appliance companies (T) Total Score Weight Rating Weighted Score Comments 1.00 SHORT INTERMEDIATE LONG Duration Quality key to success Name recognition High debt Only in N.A., U.K., and Australia Acquisition of Hoover Maytag quality Weak in this channel Dominate industry Asian presence Strategic Factor Analysis Summary (SFAS): Maytag as Example XXXX XXXXXX XXXXXXXX

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 6 Situational Analysis Niche: –A need in the marketplace that is currently unsatisfied. Goal for the Corporation –Find a propitious niche An extremely favorable niche –Strategic window Unique market opportunity available for a limited time

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 7 Situational Analysis SWOT analysis: –Internal Strengths Weaknesses –External Opportunities Threats

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 8 TOWS Matrix

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 9 Resource-Based Approach Resource: An asset, competency, process, skill, or knowledge controlled by the corporation.

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 10 Business Strategies Business Strategy: Focuses on improving the competitive position of a company’s or business unit’s products or services within the specific industry or market segment that the firm serves.

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 11 Porter’s Competitive Strategies Competitive Strategy: –Low cost? –Differentiation? –Compete head to head in large market? –Focus on niche?

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 12 Porter’s Competitive Strategies Generic Competitive Strategies: –Lower cost strategy Design, produce, market more efficiently than competitors –Differentiation strategy Unique and superior value in terms of product quality, features, service

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 13 Porter’s Competitive Strategies Competitive Advantage: –Determined by Competitive Scope Breadth of the company’s target market

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 14 Porter’s Generic Competitive Strategies

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 15 Porter’s Competitive Strategies Cost Leadership: –Low-cost competitive strategy –Aimed at broad mass market –Aggressive construction of efficient- scale facilities –Cost reductions –Cost minimization

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 16 Porter’s Competitive Strategies Differentiation: –Broad mass market –Unique product or service –Charge premiums –Lower customer sensitivity to price

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 17 Porter’s Competitive Strategies Cost focus: –Low cost competitive strategy –Focus on particular buyer group or market –Niche focused –Seek cost advantage in target market

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 18 Porter’s Competitive Strategies Differentiation focus: –Focus on particular group or geographic market –Seek differentiation in targeted market segment –Serve special needs of narrow target market

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 19 Porter’s Competitive Strategies Stuck in the middle: –No competitive advantage –Below-average performance

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 20 Risks of Generic Competitive Strategies Risks of Cost Leadership Cost leadership is not sustained: Competitors imitate. Technology changes. Other bases for cost leadership erode. Proximity in differentiation is lost. Cost focusers achieve even lower cost in segments. Risks of Differentiation Differentiation is not sustained: Competitors imitate. Bases for differentiation become less important to buyers. Cost proximity is lost. Differentiation focusers achieve even greater differentiation in segments. Risks of Focus The focus strategy is imitated: The target segment becomes structurally unattractive: Structure erodes. Demand disappears. Broadly targeted competitors overwhelm the segment: The segment’s differences from other segments narrow. The advantages of a broad line increase. New focusers subsegment the industry.

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 21 Competitive Strategy Industry Structure: –Fragmented Industry Many small and medium-sized local companies compete for small shares of total market –Focus strategies predominate

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 22 Competitive Strategy Industry Structure: –Consolidated industry Mature industry dominated by a few large companies –Cost Leadership or Differentiation predominate

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 23 Dimensions of Quality Quality Performance Features Reliability Conformance Durability Serviceability Aesthetics Perceived Quality Dimensions

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 24 Competitive Strategy Strategic rollup: –Quickly consolidate fragmented industry –Money from venture capital –Entrepreneur acquires hundreds of owner-operated firms –Creates large firm with economies of scale

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 25 Competitive Strategy Strategic rollup: –Differ from Conventional M&A’s Large number of firms Owner-operated firms Goal to reinvent entire industry

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 26 Competitive Tactics Tactic: –Specific operating plan detailing how a strategy is to be implemented in terms of when and where it is to be put into action. Timing tactics Market location tactics

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 27 Competitive Tactics Timing Tactics: –First mover (pioneer) Reputation as industry leader High profits Sets standards for subsequent products in the industry –Late mover Able to imitate technological advances of others –Keeps R&D costs down –Keeps risks down

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 28 Competitive Tactics Market Location Tactics: –Offensive Tactics Frontal assault Flanking maneuver Bypass attack Encirclement Guerrilla warfare

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 29 Competitive Tactics Market Location Tactics: –Defensive Tactics Raise structural barriers Increase expected retaliation Lower the inducement for attack

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 30 Cooperative Strategies Cooperative Strategies: –Collusion Active cooperation of firms to reduce output and raise prices –Explicit –Tacit

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 31 Cooperative Strategies Cooperative Strategies: –Strategic Alliance: –Partnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial.

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 32 Cooperative Strategies Strategic Alliance Access to markets Achieve competitive advantage Obtain technology Reduce financial risk Reduce political risk

Prentice Hall, 2002Chapter 5 Wheelen/Hunger 33 Continuum of Strategic Alliances Mutual Service Consortia Joint Venture Licensing Arrangement Weak and Distant Value-Chain Partnership Strong and Close Source: Suggested by R. M. Kanter, “Collaborative Advantage: The Art of Alliances,” Harvard Business Review (July-August 1994), pp. 96–108.